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U.S. Securities and Exchange Commission

LITIGATION RELEASE NO. 18800 / July 27, 2004

ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 2061 / July 27, 2004

Securities and Exchange Commission v. Michael Felicissimo, Civil Action No. 04-RB-1541 (OES) (D. Co.)

The Commission today filed civil fraud charges against the former chief financial officer of Qwest Communications International Inc.'s ("Qwest") wholly owned subsidiary, Qwest Wireless LLC ("Wireless"), alleging that he fraudulently concealed $112 million of improperly recognized revenue at Wireless. The Commission's complaint alleges that, on several occasions between April 2001 and July 2002, Wireless's accounting group identified errors in its accounting for revenue from the sale of mobile phone products and services. For example, between at least January 2000 and September 2001, Wireless improperly recorded revenue from mobile phone accessories that were given to customers for free as an inducement to buy other products and services. These revenue recognition errors caused Wireless, and hence Qwest, to overstate revenue by about $57 million in 2000, $46 million in 2001, and $9 million during the first two quarters of 2002.

The Commission's complaint further alleges that over the course of several months between September 2001 and July 2002, the Wireless accounting group estimated the amount by which Qwest had overstated revenue based on the errors and, on numerous occasions, informed Felicissimo of its conclusions. Rather than telling the president of Wireless or other higher-level Qwest executives about the overstatements, Felicissimo concealed, and directed others to conceal, those overstatements. For example, after viewing a document in about July 2002 showing that the accounting group estimated that Qwest had overstated revenue by about $20 million in 2000, $33 million in 2001, and $9 million through the first two quarters of 2002 based on all of the errors, Felicissimo told a Wireless accountant to "bury" the document.

The Commission's complaint seeks an order against Felicissimo enjoining him from further violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Exchange Act Sections 10(b), 13(a), and 13(b)(2) and Rules 10b-5, 13a-1, 13a-11, and 13a-13; imposing civil money penalties; ordering disgorgement of all ill-gotten gains, including compensation, bonuses, and stock trading profits made during the relevant period; and barring him from acting as a director or officer of a publicly held company.

The Commission's investigation into the conduct of others is continuing.

SEC Complaint in this matter

 

http://www.sec.gov/litigation/litreleases/lr18800.htm


Modified: 07/29/2004